The finance ministry aims at jacking up the GDP growth rate to 6.5 per cent from a current below 6 per cent with today’s budget while keeping the rate of inflation below the current level of 8 per cent.

Finance secretary Ajit Kumar told reporters here at a customary press conference here that this year’s budget had been made in the backdrop of an economic slowdown, especially in the industrial sector. “We consequently tried to give a growth impetus by dismantling the remnants of the control economy.”

Controls in the farm produce market, reservations in the small scale sector and in labour’s exit policies were consequently either scrapped or scaled down. Kumar said he expected these initiatives to unleash both industrial and farm sector growth . He said a key element in this overall strategy was to keep government expenditure tightly in control.

“This will help us keep the fiscal deficit within 4.7 per cent of the GDP. We could have done better and brought it down to 4.6 per cent, but there was a question of a trade off between either giving up the baggage of various surcharges or bringing it down to 4.6 per cent, we preferred the former,” he told reporters.

But despite the rhetoric on growth impetus, the finance secretary was unable to explain how these measures would translate into real GDP growth. Nor was the finance secretary able to give calculations of industrial and farm sector growth which the finance ministry believed would happen giving the country the extra half per cent GDP growth.

The government also conceded that it would end up spending up Rs 36,700 crore more, a move which alone could give an inflationary push. The move to initiate interest rate reductions could also trigger off inflationary pressures as more money would go into circulation.

Expenditure secretary C.M.Vasudev, who joined Kumar at the conference, said the two biggest items of expenditure increase were in interest outgo and plan expenditure — Rs 11,000 crore and Rs 12,000 crore respectively. Besides the subsidy bill goes up by Rs 7,000 crore, non-plan expenses Rs 3,300 crore and defence expenditure by Rs 3,400 crore, he said.

The government during the current year made a conscious effort to cut non-plan expenditure, he however claimed. But he also admitted that it was the tendency to postpone plan expenditure which really gave it a cushion which helped it shoulder the impact of rising subsidies and shortfall in revenue earnings. “Fertiliser subsidies went up by Rs 1,100 crore and food subsidies by Rs 4,500 crore, tax shortfall was to the tune of Rs 1,700 crore and there was a shortfall of about Rs 7,500 crore in our targeted disinvestment earnings,” Vasudev said. Revenue secretary S. Narayanan, who also tried to allay apprehensions that his move to bring in a single Cenvat of 16 per cent could lead to inflationary pressures, had to admit “the many items which have now been brought under the excise duty net, have not been subjected to duty in the past and it is not possible to guess the inflationary impact due to this.”

Trying to address criticism of cheaper imports drowning Indian manufactures and farm produce, the revenue secretary said his customs calculations had been worked out in a bid to protect Indian farmers from predatory cheap imports.

“The three main cash crops which were getting hit were copra, tea and coffee; so our first aim was to protect these. Besides, we aim to increase the duty on a variety of farm products when they are opened up,” he said. He said this was being done even as government brought down the average customs duty rate from 20 per cent 18.8 per cent. Officials added the government assumed a nominal growth of imports by ten per cent in the coming year in their calculations. Narayanan said 414 new products have been brought under excise duty but 260 others will continue to get technical exemptions as it would not be administratively possible to bring them under tax net.

Tight rein on fiscal deficit

The primacy given to the capacity to spend by various departments rather than slashing their demand for funds was the key to keeping the fiscal deficit to the estimated level of 5.1 per cent, finance secretary Ajit Kumar said.

There has been a tendency among the departments to inflate their demands thinking the finance ministry would cut it by certain percentage and this was leading to a lot of overestimation, he told Doordarshan during a debate on the Budget 2001-2002. “This year we focused on their capacity to spend. Accordingly, we decided to sanction funds,” Kumar said. “This helped in checking the fiscal deficit.”

When a department did not have the capacity to spend, what was the point in giving it additional finances just because it had demanded it, said Kumar. The finance secretary said that the annual growth rate of 6.5 per cent proposed in the budget was a realistic one and hoped that it would reach 7 to 8 per cent within two years.

“We are confident it will be achieved,” Kumar said. “We fixed a growth rate of 6.5 per cent consciously because the administered price mechanism is being removed,” he said.

The government was following a transparent policy by tabling the implementation report on last year’s Budget proposals, he said,adding the government will revert to the House with similar reports.

“We have dodged the bullet,” said Ramesh Damani, a prominent BSE broker, with a sense of triumph. Opening higher at 4070.37, the index moved up to the day’s high of 4264.02 before closing at 4247.04 as against Tuesday’s close of 4069.68, showing a net rise of 177.36 points or 4.36 per cent.

The view in the market was unanimous: “The finance minister has bettered expectations,” said Gul Tekchandani, chief investment officer at Sun F and C Asset management.

Bourses, who had fears the budget will unleash harsh revenue-raising measures to help rebuild quake-ravaged Gujarat, were cheered by the budget. The prime minister and the finance minister had earlier warned of tough steps.

Fears in the past few days of a looming payment crisis were forgotten as HFCL and Global Telesytems, languishing at their lower-end circuit filters of 16 per cent, sprang to life.

Market sources attributed the rally to rumours that the Unit Trust of India scooped up a big chunk of HFCL and Global Telesystem shares from a leading bull who were in default. The losers were ITC, the tobacco giant which bore the brunt of the excise duty hike and power companies like BSES and Tata Power.

The reduced tax dividends are expected to benefit shareholders of high dividend-paying MNCs given that their valuations are expected to rise along with their yields, an analyst said.

The hike in the cap for foreign institutional investment from 40 per cent to 49 per cent is expected to send FIIs to go on a buying binge soon.

Riding piggyback on growth-oriented budget proposals for the software industry, operators rushed to cover short positions in almost all the infotech shares which have been battered in the past few months on fears that fresh taxes would be slapped on these companies. However, the reduction of customs duty to 15 per cent
on IT and telecom reassured investors.

Marketmen were cheerful on
encouraging proposals like increase in foreign investment limit in a
company to 49 per cent, reduction in dividend tax to 10 per cent, ten-year tax holiday for infrastructure projects, and removal of income tax
surcharge on corporate and non-companies except 2 per cent earthquake surcharge. Index heavyweight
Hindustan Lever Limited, Tata tea and Bank shares surged as the budget proposals benefit them the most.

EXCISE DUTY CUTS MAY MAKE CARS CHEAPER

FROM OUR CORRESPONDENT

New Delhi, Feb. 28:

The slowing automobile industry received a boost with excise duty cuts. Car makers are already talking of cutting prices. B.V.R Subbu, director (marketing and sales) at Hyundai Motors indicated that Santro prices could be could be slashed by Rs 18,000 and Accent’s by Rs 34,000.

Other gainers from the reductions in excise are two-wheelers, taxis, passenger cars, heavy and medium commercial vehicle segments, received a boost with excise duty cuts.

Presenting the budget, Sinha announced an accelerated depreciation at the rate of 50 per cent on new commercial vehicles for one year. Sinha has also restructured the central value-added tax (Cenvat) on two wheelers and taxis from three slabs to one single rate of CENVAT and thus abolishing the eight per cent special excise duty on the above two items.

“In my last budget, I had introduced the rate of 16 per cent as the rate of Cenvat. I had also rationalised the rates of special excise duty to three , namely, 8,16 and 24. The single rate of Cenvat now contributes about 68 per cent of the total excise revenues from ad valorem duties,” said Sinha. “I now propose to reduce the three rates of special excise duty to a single rate of 16 per cent. As a consequence, I propose to abolish the eight per cent special duty on scooters and motorcycles and taxis,” he added.

Sinha has also proposed to increase the rate of basic customs duty on import of second hand cars to 105 per cent, which will be three times of the peak rate. The total duty now applicable to second hand cars will be more than 180 per cent. Similar structure of duty is proposed to be imposed for the import of old multi-utility vehicles, scooters and motor cycles.

NO SLIP BETWEEN CUP AND LIP FOR TEA FIRMS

BY A STAFF REPORTER

Calcutta, Feb. 28:

The budget is a happy blend for tea companies, which have finally won concessions they have been asking the government to offer since the last two years.

The finance minister has increased the customs duty on imported tea from 35 per cent to 70 per cent, which seeks to curb imports in the post-QR regime. The developmental allowance goes up from 20 per cent to 40 per cent.

“We welcome the increase in customs duty on import of tea from 35 per cent to 70 per cent. This is in consonance with the government’s policy of ensuring that there are adequate safeguards after the quantitative restrictions are dismantled,” R.S. Jhawar, chairman of Indian Tea Association (ITA) said.

Last year, the industry was buffeted by a price slump, reportedly caused by a wave of cheap imports to the tune of 12 million kgs. The industry complains that cheap varieties are imported from countries such as Nepal, Bangladesh, Malawi and Sri Lanka and being blended with the Indian tea.

“This will put an end to the imports of the cheap tea. The price of blended tea will go up. We expect Indian tea to regain its once-dominant position in the domestic market. The budget will help boost the growth of the tea industry,” said R.K. Dixit, chairman of Darjeeling Planters Association.

Jhawar said ITA particularly welcomes the proposals related to the Income Tax Act, enhancing the rate of allowance under Section 33 AB from 20 per cent to 40 per cent.

This measure will enable the tea industry to substantially step up its developmental activities by way of replantation, rejuvenation and modernisation and will provide a strong foundation to the tea industry not only to sustain growth but also measure up to challenges in the post WTO era.

The tea bushes which are more than 50 years old need to be uprooted. “The enhancement in developmental allowance will help Darjeeling and South Indian tea industry which cannot take any developmental work due to non-availability of funds,” a senior tea industry official said.

Krupakaran David, managing director of Goodricke Group Ltd welcomed the budget. However, he pointed out it has not addressed the rising cost of production of tea. “It would had been a welcome relief if the government took steps to reduce central taxes on plantation. Tea industry has to pay both agricultural income tax and central tax,” he said.

SALAD OF SOPS FOR INFRASTRUCTURE

FROM OUR CORRESPONDENT

New Delhi, Feb. 28:

Finance minister Yashwant Sinha has laid out major sops for housing, roads, power and ports sector.

Presenting the General Budget in Lok Sabha today, he proposed a 10-year tax holidays for roads, highways, rail systems, water treatment and supply, irrigation, sanitation and solid waste management systems. This will be available in the first 10 years of the project.

Projects in other infrastructure sectors like airports, ports, inland waterways, industrial parks and generation and distribution of power, the government has proposed 10 year tax holiday which will have to be availed in the first 15 years of the project. Power and industrial parks have time until March 31 to start operations if they want to get the benefits.

Tax incentives have also been provided for investors who provide long-term finance or investing in the equity capital of the enterprises involved in infrastructure facilities. Income in the form of interest, dividends or long term capital gains from such investments will now be free of taxes.

Roads, highways, bridges, airports, ports and rail system are treated as infrastructure facilities under the existing provisions of section 80-1A of the Income Tax Act, 1961.

Infrastructure companies are entitled to a tax holiday for five years and a deduction of 30 per cent in profits. The benefits may be availed by an enterprise for 10 consecutive years in the first 15 years.

Housing

The tax deduction against interest payable on housing loans for self-occupied houses has been increased to Rs 1.5 lakh from Rs 1 lakh.

Under the existing provisions, interest payable on loans taken on or after April 1, 999 to acquire or construct one self occupied house is deductible up to Rs 1 lakh where such acquisition or construction is completed before April 1, 2003.

Incomes from real estate to the present deduction of 25 per cent of annual value for repairs is proposed to be raised to 30 per cent. “The three budgets provided for increasing tax incentives for the housing sector and continuing with this practice. I propose to further increase the maximum amount of deduction available for interest payable on housing loans for self-occupied houses from Rs 1 lakh to Rs 1.5 lakh”

Power

Power generation and distribution will enjoy a 10-year tax holiday which will have to be availed in the first 15 years of the project. The plan outlay for central power utilities has been raised to Rs 10,030 crore for 2001-02 from Rs 9,194 crore this year “The importance of power in driving economic growth cannot not be over emphasised,” he said.

State electricity boards (SEBs) — with combined losses of Rs 24,000 crore — had to fork out implicit subsidies of Rs 36,000 crore this year.

The government has also increased the allocation for Accelerated power Development Programme (APDP) from Rs 1,000 crore in 2000-2001 to Rs 1,500 crore for year 2001-02.

Roads

Sinha has allocated Rs 962 crore for the National Highway Development Programme (NHDP). Phase one of this plan is expected to be completed by December 2003.

The amount has been collected from the cess fund to develop state roads. The total outlay for this sector is being raised by 93 per cent to Rs 8727 crore in 2001-02. In addition, Rs 2 500 crore has been allocated for the Pradhan Mantri Gram Sadak Yojana. This project aims to connect every village with a population of over 1000 persons through good all weather roads by the year 2003 and those with a population of up to 500 persons by the year 2007.

Ports and shipping

A 10-year tax holiday for ports, inland waterways in the first 15 years of the project has been proposed. The shipping industry’s demand to increase the rate of depreciation has been accepted. “There has been a long-standing demand that the rate of depreciation on ships and inland water vessels should be increased. I have raised it to 25 per cent,” Sinha said.

RED CARPET FOR DIGITAL DYNASTY

FROM OUR CORRESPONDENT

New Delhi, Feb 28:

Finance minister Yashwant Sinha has pampered the information technology and telecom sectors by announcing major sops in the Union Budget 2001-2002.

However the rates on traditional postal services have been hiked. The customs duty on IT and telecom products have been reduced to 15 per cent from current 25 per cent, which would be applicable from tomorrow.

“It sector continues to do well and should be encouraged to do better. I therefore propose that profits derived by the units located in the software technology parks from exports of “on site”services will be eligible for deduction like their other export income,” said Sinha.

“Units located outside these zones will also get the benefit of tax exemption on such export earning. I further propose that the conditions relating to transfer of ownership of companies in sections 10 A and 10B of the income-tax Act shall not apply to companies in which public are substantially interested,” he added.

Presenting the Union Budget today, Sinha said, “In case of export oriented units and units located in export processing zones, free trade zones and software technology parks 25 per cent of their sales in the domestic market are currently tax exempt. I propose to provide for the taxation of profits from these domestic sales of such units.”

Sinha has also proposed a 10 year tax holiday for investment in IT parks and Special Export Zones. Government, in last budget had provided, a 100 per cent deduction of export profits for a period of ten years to units operating in the Special Economic Zones.

“The concessions available for infrastructure by way of 10 year tax holiday will be available to the developers of Special Economic Zones on the same lines as developers of industrial parks. The income of investors making long term investment for the development of SEZ will also be exempt,” said Sinha. Internet and broadband services also received the fillip from Sinha in the Budget.

A five year tax holiday and 30 per cent deduction for the next five years was available to the telecommunications sectors till March 31,2000. Sinha has extended the same benefit to internet service providers and broadband networks, for units commencing operations on or before March 31,2003.

In Calcutta, Gurudas Sarkar, chief operating officer of netguru, said more could have been done if the corporate tax structure and rates were revamped.

“The budget is not encouraging for the industry. The 49 per cent cap on FII flows is not enough for wholly-owned subsidiaries like us. We also expected the customs duty to be brought down to 5-6 per cent. The corporate tax structure has also remained the same. On balance, the budget will hardly have any impact on the IT and services industry.”

“Allowing companies to make foreign investments up to 100 per cent of their ADR and GDR proceeds provides a two-way fungibility and will help software firms to get themselves listed on global bourses. The move to promote technical education will help develop manpower resources for the software industry,” Raj Jain, managing director, RS Software, said.

Caltiger president Joe Silva lauded the tax holidays offered for internet access providers (ISPs). “We are pleased with the 5-year tax holiday for ISPs and broadband networks. There will be a spurt in mergers and acquisitions.”

“We welcome proposals that make it easier to get loans for education. The capital account liberalisation and relaxation of foreign investment norms will spur growth of knowledge-based firms,” SSI chairman and CEO Kalpathi S Suresh said.

After the ban on advertising, the cigarette industry is poised for yet another blow with finance minister Yashwant Sinha proposing a 15 per cent excise duty surcharge for the next financial year.

According to a quick estimate, ITC, the largest cigarette manufacturer, will have to cough up an additional Rs 600 crore on account of this surcharge while Godphrey Phillips will have to bear a burden of over Rs 75 crore.

Godphrey Phillips chairman K.K. Modi said the tax burden will lead to a sharp decline in sales volume in the entire cigarette industry.

“This will pave the way for cheaper tobacco products and the state exchequer will have to bear the revenue loss,” he said. Modi pointed out that the ever-increasing fiscal pressure is an impediment for further investment in the sector. This was why modern technology could not be introduced in the sector, he added.

ITC chairman Y.C. Deveshwar, in a release, said, “Overall, it is a reformist budget and it is hoped that the reforms will be implemented effectively to make the Indian industry internationally competitive.” But he avoided any comment on the imposition of special surcharge on cigarettes. However, sources in ITC said the company is “terribly disappointed” with the budget proposals.

“The cigarette industry is the source for very high revenues. But every year, this industry is singled out for discriminatory treatment,” an ITC official said. The tax pressure will ultimately help cigarette smuggling which is estimated to be growing at an alarming 20 per cent, he added.

“This contraband trade is causing an outflow of foreign exchange to the tune of over Rs 700 crore every year,” he said.

Godphrey Phillips CEO R.N. Poddar said the budget proposals will hit consumers, many of whom will be forced to take to bidi and pan masalas. Poddar pointed out that the company would review all future plans because of the harsh budget.

The duty on bidis would increase from Rs 6 to Rs 7 per thousand units. The total duty on pan masala would be in the range of 55 per cent to 60 per cent. Miscellaneous tobacco products like chewing tobacco would be charged a total duty of 60 per cent This is the first time in three years that taxes on cigarettes have been increased. This coincides with an increase in the volume of cigarettes sold in three years.

Tobacco companies are under pressure after the government imposed anti-smoking measures. On February 6, the government announced its plans to ban smoking in public places. It also said tobacco firms would not be allowed to sponsor sporting events.

Duties on cigarettes depend on their length, with the shorter non-filter sticks being taxed the lowest.

BANKS TO HANDLE RECRUITMENT

BY A STAFF REPORTER

Calcutta, Feb 28:

The abolition of Banking Service Recruitment Board (BSRB) in the Union Budget 2001-02 has evoked mixed reactions with the bank managements welcoming the step and the unions opposing it.

Union finance minister Yaswant Sinha has said the BSRB will be abolished by July 31 or earlier. The banks, which have been sharply downsizing the workforce through voluntary separation packages, will handle all future recruitments by themselves.

Reacting to the abolition of BSRB, chairman and managing director of Allahabad Bank B. Samal said, “We had been requesting the government to abolish the BSRB for quite some time. We are happy that we will be able to hire highly professional people from the open market. We are happy that the banks have been given more autonomy.”

There has been a virtual freeze on recruitment in general cadres (officers and clerks) through the BSRB, he added. Only recruitments in special cadres like law officers, computer professionals, and foreign exchange officials now take place through BSRB. There is one BSRB in every state.

According to a rough estimate, about 13,000 people are recruited now through BSRB each year. “Earlier the number was huge,” Samal said. The banks place their recruitment plan to the BSRB and the later conduct the recruitment process on behalf of the banks.

However, the unions are against the idea of abolishing the BSRB for recruiting people. S. R. Sengupta, general secretary of All India Bank Officers Confederation said, “The finance minister has given a signal to the bank chairmen to put a freeze on the recruitment. Now, the recruitment will depend on the discretion of the bank management. We oppose this move.”

On banking sector reforms, Sinha announced that seven more debt recovery tribunals will be set up this year to speed up recovery. He said the focus will be on the recovery of non-performing assets. Till date, the banking sector has been able to recover Rs 800 crore from two lakh sticky accounts.

“The foreclosure laws will also strengthen the banks to recover the dues,” said a senior official of Central Bank of India.

The banks have also lauded the move to cover the farmers all over the country under Kisan credit card within another three years time. Already 1.10 crore farmers have been brought under Kisan credit card. “Linking Kisan card with personal insurance is also a welcome step. If anything happens to the farmer, we are sure of getting our money back. The entire measure will boost agriculture,” Samal said.

A senior official of State Bank of India said the repeal of the Sica Act will provide for powers to the banks to recover their dues. The amendment of Board for Industrial and Industrial reconstruction will further help the process. “Earlier if a company was referred to BIFR then it took years to recover our dues. Now the major stumbling blocks have been removed and we feel recovery of NPAs will not be a problem anymore,” he further added.

The bankers also lauded the finance minister’s proposal to widen the base of educational loans. “While this will ensure credit offtake it will also help the business of the banks to grow,” a senior Punjab National bank official said.

SINGLE-RATE EXCISE REGIME

FROM OUR CORRESPONDENT

New Delhi, Feb. 28:

The excise duty structure has been folded into a single rate of 16 per cent, with only four exceptions. The special excise duty (SED) rates of 8, 16 and 24 per cent has now been reduced to a single rate of 16 per cent SED.

The few items that are currently taxed at the Cenvat rate of 8 per cent will be subject to the normal rate of 16 per cent, except cotton yarn including sewing thread, LPG, kerosene and diesel engines up to 10 HP, which have been left in the 8 per cent slab.

Food preparations based on fruits and vegetables will now be completely exempted. This includes items like pickles, sauces , ketchup and juices.

The finance minister has proposed to abolish the 8 per cent special excise duty on glazed tiles, mattresses and articles of bedding, carpets and floor coverings, scooters and motorcycles and taxis. These items will now be subject to the Cenvat rate of 16 per cent.

The special excise duty on aerated soft drinks, soft drinks concentrates supplied to vending machines and motorcars will be reduced to 16 per cent instead of 24 per cent.

Duty on cement, yachts & pleasure boats, arms and ammunition, fur-skin will be 16 per cent Cenvat, plus 16 per cent special duty.

For the replenishment of National calamity contingency fund, a levy surcharge of 15 per cent on cigarettes has been proposed. Duty on bidis is being raised to Rs 7 per thousand from Rs 6. Total duty on pan masala would now be 55 and 60 per cent. Chewing tobacco will attract a total duty of 60 per cent.

The excise duty on high -speed diesel which was reduced to 12 per cent in September last has been restored to 16 per cent. Special excise duty on motor spirit is also being restored to 16 per cent. 8 per cent excise duty on LPG is being extended to CNG.

Excise duty exemption given to SSIs up to Rs 1 crore of capital is being withdrawn in cases relating to cotton yarn, ball or roller bearings and arms and ammunition for private use.

Excise duty on matches at the lowest level has been doubled to 60 paisa per hundred boxes of 50 sticks in case of the handmade sector. Branded garments are to attract a duty of 16 per cent. The finance minister has stated that excise duty changes to net an income of Rs 4677 crore.